Tegna (TGNA -3.31%)
Q2Â 2019 Earnings Call
Aug 06, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone, and welcome to the TEGNA second-quarter 2019 earnings call. This call is being recorded. Our speakers for today will be Dave Lougee, president and chief executive officer; and Victoria Harker, chief financial officer. At this time, I would like to turn the call over to John Janedis, senior vice president of capital markets and investor relations.
Please go ahead, sir.
John Janedis -- Senior Vice President of Capital Markets and Investor Relations
Thank you, Ebony. Good morning, and welcome to our second-quarter earnings call and webcast. Today, our president and CEO, Dave Lougee; and our CFO, Victoria Harker will review TEGNA's financial performance and results. After that, we'll open the call for questions.
Hopefully, you've had the opportunity to review this morning's press release. If you have not yet seen a copy of the release, it's available at TEGNA.com. Before we get started, I'd like to remind you that this conference call and webcast includes forward-looking statements, and our actual results may differ. Factors that may cause them to differ are outlined in our SEC filings.
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This presentation also includes certain non-GAAP financial measures. We have provided reconciliations of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website. With that, let me turn the call over to Dave.
Dave Lougee -- President and Chief Executive Officer
Thank you, John, and good morning, everyone. As you saw in our earnings release this morning, our second-quarter performance was strong with all of our key operating metrics finishing in line with the guidance we announced last quarter. Our subscription business continues to provide us with a high degree of visibility and the strength and durability of our future cash flow streams. And we continue to execute on our capital allocation and M&A strategy as exhibited by the acquisition of Dispatch Broadcast Group's dominant stations, which I'll discuss in more detail later.
We remain committed to creating long-term value for our shareholders by bringing TEGNA's operational expertise to the stations we acquire, expanding our presence in strong political advertising markets, and serving customers through innovative content and marketing -- market-leading advertising solutions across multiple platforms. For the second quarter, TEGNA's total reported company revenue was $537 million, up 2% year over year and in line with the guidance of low single-digit growth we provided last quarter. Our revenue growth was driven primarily by advertising marketing services and a 13% increase in subscription revenue, which more than offsets the $22 million reduction in political advertising compared with last year. As Victoria will discuss later, our underlying advertising and marketing services revenues continue to improve sequentially, up 3% in the second quarter, with demand from advertisers broadening across several categories.
We've also had an active quarter and year on M&A front. We announced an agreement with Dispatch Broadcast Group to acquire leading NBC and CBS affiliate stations WTHR and WBNS and Ohio's premier sports radio stations on June 11th. With the addition of these stations, we have further built out our portfolio of leading big four affiliates and brands in top markets. When the Nexstar and Dispatch acquisitions are completed, TEGNA will own or operate 62 stations in 51 markets, reaching 39% of all U.S.
households. Also we closed on the previously announced acquisition of the approximately 85% of multi-cast networks Justice Network and Quest that we had not previously owned. Through this acquisition, we provide unique ad-supportive programming to millions of television homes across the country and serve an increasing number of over-the-air viewers. Now I'm gonna turn to our subscription revenue business.
It continues to provide us with growing and predictable cash flow, which is supported by both ongoing rate increases in existing agreements, and step ups in renewals. We are particularly enthusiastic to enter a period in which the vast majority of our subscribers are up for renewal, specifically 85% of our subs will be renegotiated and repriced between the fourth quarter of this year and the end of next year. And on the other side of the net retrans equation, we now have clear visibility into that as well with the recently announced CBS agreement through 2022, we now have long-term affiliation agreements in place covering nearly 99% of our households. Turning now to political.
We continue to strengthen our position for next year's presidential elections, where our strategic acquisitions and strong foothill -- footholds in key battleground states. Our announced acquisition of the Nexstar Tribune divestiture stations provides us with 11 stations in eight markets, including two stations each in Pennsylvania and Iowa, both big presidential battleground states, obviously. And following the close of the Dispatch stations, where we added dominant No. 1-rated stations in Indianapolis and Columbus, Ohio, TEGNA stations will cover two thirds of all TV homes in Ohio.
Our portfolio of very strong stations, including those in these many battleground states, are prime to benefit from expected record levels of expenditures next year. And as a reminder, we still expect the subscription and political revenues I just discussed to make up approximately half of our total two-year revenues beginning with a '19-'20 cycle and an increasing percentage thereafter, a dynamic that will allow us to drive shareholder value regardless of any cyclical variability in the spot advertising market. Now I'd like to share some updates on our strategic content and program initiatives in the second quarter. As part of our ongoing commitment to content innovation and building on the success of the BOMBER podcast we announced last quarter, TEGNA's VAULT studios released two new prime podcast projects, TRUE CRIME CHRONICLES and BARDSTOWN, build on real-life cases investigated by our award-winning reporters and are tailormade for the wide and diverse audience of true crime fans, which is a large group.
These programs leverage our vast library of news archives, or exclusive IP, as I'd like to refer to it, across all of our markets. Our live socially driven Daily Blast LIVE show continues to experience strong audience growth across both traditional and digital platforms. For the May sweeps, this show posted 17% growth in women 25 54 and a 54% growth in Facebook video views. On the journalism front, we continue to earn nationwide recognition with TEGNA stations receiving 10 National Edward R.
Murrow Awards for excellence in local journalism, more than any other group. TEGNA also received 91 regional Edward R. Murrow Awards, the most in its history. This is a true testament to our commitment to excellence in journalism, and we remain dedicated to maintain this key differentiator of our business.
Our clearly stated purpose is serving the greater good of the communities we serve, and I would argue that our passionate commitment to local journalism and the First Amendment has never been more important to our democracy than it is today. We have and will continue to innovate to seek opportunities to take advantage of emerging trends in consumer TV behavior, and our commitment to ongoing investments in high-quality, monetizable content have positioned us to capitalize on these trends. While we are pleased with all the strategic initiatives have delivered to our customers and shareholders to date, we continue to look for new ways to augment our portfolio, which reaches audiences nationwide. Finally, I would like to highlight our announcement from last week that is part of our sales force transformation.
We will be taking our national sales in-house with the creation of a new, unified, single in-house national sales organization beginning next month. This change will better align our sales efforts to go -- and go-to market strategy as we embrace automation of the business that is more commoditized and free up our talented sales force to develop more solutions and results for our national clients. In closing, I'm very pleased in our accomplishments for the first half of 2019. One, we've announced or closed on nearly $1.5 billion of acquisitions that are immediately accretive to free cash flow.
Two, as a result, we've also added five 5 political battleground markets. Three, the advertising market has improved to the first half of the year, with several of our top categories positive during the quarter and the outlook for the third quarter is a continuation of this improvement due to the combination of increased demand and also due to market share gains because our content and sales transformation initiatives are working. Four, we had increased visibility on net retrans by renewing our CBS agreement through 2022 and now have big four agreements covering nearly 99% of our paid subs going out to 2021 and beyond, ahead of the large retrans renewal spikes -- cycle I spoke to earlier. And five, we are in the early stages of leveraging our own archive content across multiple platforms, all while remaining on track to hit our financial and leverage guidance.
I'll now pass the call over to Victoria to cover our financials in more details. Victoria?
Victoria Harker -- Chief Financial Officer
Thanks, Dave. Good morning, everyone, and thanks for joining us. As Dave mentioned, we are excited about all of the growth initiatives we have executed on this quarter, organic as well as M&A. In my remarks, I'll cover the expected impacts of both as well as update you on our planned capital allocation going forward.
But before I cover our consolidated and financial results, I'd like to review just a few special items for you which had just a small impact on the quarter. These include $5 million in acquisition-related fees and severance costs of $1 million, partially offset by $4 million of reimbursements for spectrum repacking. Nonoperating items included an income gain of $7 million, primarily related to the write-up of our previous investment in the Justice Network and Quest, triggered by our acquisition of the remainder. Now on to the second-quarter consolidated financial results.
Keep in mind that most of my comments today are focused on TEGNA's performance on a non-GAAP basis, providing you with clear insight into our financial drivers, business trends and operational results. Also as a reminder, our revenue results this quarter do face a tough year-over-year comparison due to $26 million political advertising last year, a common cyclical even-to-odd year trend. You will find all of our reported data and prior period comparatives in our press release. Now for revenue results.
Total company revenue for the second quarter on a reported basis was up 2% year over year, right in line with our low single-digits guidance. As you've seen from our press release, this was primarily driven by subscription revenue, which grew $27 million during the quarter. When excluding political advertising impacts, total revenue was up fully 7% year over year, well in line with our prior guidance. This is a direct result of our subscriber growth trends, which continue to be stable.
These high-margin subs produce annuity-like cash flows, which allow us clear forecasting visibility. As a result, we continue to expect another year of healthy revenue growth in 2019 and are confident in our mid-teens growth guidance for the year. Now turning to advertising and marketing services. As expected, advertising and marketing services revenue increased 3% year over year, which marks a sequential improvement over first-quarter 2019 as well as year over year.
This reflects strong underlying TV advertising trends, accompanied by solid growth by Premion. To provide some further color on specific advertising category performance trends, which vary by sector, as always, the stronger categories this quarter included professional services, banking, media and telecom, packaged goods, utilities and education. Other quarters such as auto and restaurants were lower in the quarter, reflecting trends in those sectors. Moving now to expenses.
As expected, our operating expenses were 4% higher this quarter at the low end of our mid-single-digits guidance. This increase was driven primarily by higher programming fees partially offset by our ongoing streamlining of our business processes. As a reminder, these programming fees include reverse compensation paid to networks. When excluding programming costs, expenses were down slightly, also in line with our guidance.
During the second quarter, corporate expense was $10 million, down $1 million from last year, reflecting our successful efforts to reduce the cost of managing the business overall. As a result, adjusted EBITDA, excluding corporate expenses, was $179 million, producing a solid 33% margin. During the second quarter, we generated $52 million of free cash flow, roughly 10% of revenue, in line with projections previously incorporated in our two-year guidance range of 18% to 19% of revenue. Our debt increased during the quarter by approximately $60 million to $3 billion, primarily due to drawing our revolver to fund the Justice Network and Quest acquisition, producing net leverage of four times.
As previously discussed, we continue to use our free cash flow and our $1.5 billion revolving line of credit to invest in both new products and initiatives as well as to fund acquisitions. Later this fall, we expect to refinance some of our existing debt maturities, taking advantage of historically low interest rates. The proceeds will then be used to replenish some of the drawn revolver, which we also plan to extend one year to 2024 with no change to its size. Now turning to M&A.
As Dave noted, we have been very active on the M&A front this year, reflected in the announced acquisition of two dominant TV stations and two radio stations from Dispatch Broadcast Group for $535 million earlier this year -- or earlier this quarter. In addition, the $77 million acquisition of Justice and Quest Networks also closed this quarter. As a reminder, the Dispatch transaction provides us the No. 1-rated TV stations in both Indianapolis and Columbus for a 2018-'19 EBITDA multiple of 7.9 times, including run rate synergies.
We expect the transaction to close very shortly, with the Nexstar divestiture stations expected to follow later this quarter. We plan to fund all three transactions through the use of available cash and borrowing under our credit facility. All of these transactions are immediately free cash flow accretive and EPS accretive in less than 12 months, reflecting our strong financial discipline and the compelling value of strategic fit, the cornerstone of our M&A strategy. Now turning to third quarter and full-year 2019 guidance.
In an effort to help forecast our future results, we're again providing several key quarter-ahead financial guidance metrics. Just as a reminder, again, the third quarter of last year included $60 million of political advertising and approximately $6 million of Premion revenue, which was subsequently adjusted out. We expect third-quarter total reported company revenue to be down low single digits. Excluding the impacts of political ad revenue from last year's third quarter and $5.8 million of Premion adjustments, we expect revenue growth to be in the high single-digits range.
I would add that this does not include the immaterial impact from Justice Quest or the acquisitions that have not yet closed. We will provide updated guidance on our third-quarter call in early November, which reflects the impacts of all closed transactions and provide prior period performance as well. From an expense perspective, we expect third quarter to increase in the mid-single digits driven by higher programming fees, or flat to up slightly, excluding programming expense. Midway through the year, we are on track to meet all of our previously discussed guidance elements for the year.
Key organic guidance metrics for the full year in 2019, including -- include the following key elements and remain unchanged since our prior updates. One, we expect to see full-year subscription revenue up mid-teens percent based on sub trends and track timing event BPD renewals. While only 15% of our subs renewed last year, approximately 85% of our subs are up for renewal by the end of 2020. Corporate expenses are expected to total approximately $45 million.
Depreciation is projected to be in the range of $55 million to $60 million, with amortization of approximately $35 million. Interest expense for the year is expected to be in the range of $190 million to $195 million. We expect capital expenditures between $70 million and $75 million, which includes recurring capex of approximately 30 to 40 -- $35 million to $40 million and about $35 million in nonrecurring projects, including mandatory channel repacking, our headquarter's relocation, which was completed in the first quarter and a new facility in Houston, which was completed in February. We expect the effective tax rate to be at the low end of the 23% to 25% range.
And beyond this, as we previously disclosed, we plan no additional share repurchases until we delever from funding our new acquisitions. For 2018-'19, we project free cash flow of 17% to 18% of revenue on a two-year basis and 18% to 19% of revenue for 2019 and '20. In terms of capital allocation, building now on Dave's comments regarding the current M&A environment. As we previously discussed, TEGNA follows a disciplined capital allocation framework that balances our desire to enhance our growth profile through strategic, accretive acquisitions with our commitment to a strong balance sheet, organic growth and return of capital to shareholders through dividends and delevering.
Capital allocation decisions are always tightly aligned with maximizing shareholder value, and we consistently allocate capital to the options that offer the highest medium- to long-term financial results. As Dave noted earlier, we continue to participate actively in M&A processes for assets that are fit for us within current industry regulation and frameworks. And we have ample capacity under the cap, even after including our recent acquisitions, to execute on our strategy further. Our recent acquisition demonstrates the efficiency of our buying power.
For about $1.4 billion, we acquired approximately an annualized $500 million in revenue and $200 million EBITDA on a two-year average basis with about $100 million in free cash flow, while only retiring three points of cap headroom. We clearly remain laser focused on creating incremental shareholder value with every opportunity we create. To be honest, our second-quarter results as well as our outlook for 2019 demonstrate that we are making strong progress in diversifying our organic revenue and cash flow streams, reaffirming our confidence in our long-term strategy. As a result, the continued growth of less cyclical profitable businesses only serves to enhance our ability to create shareholder value with even greater transparency, with M&A providing an important opportunity to leverage our operating scale to enhance content and efficiencies.
We could not be more confident in the runway this provides into 2020. With that, I'd like to open it up to questions. Operator?
Questions & Answers:
Operator
Thank you. [Operator instructions] And we will take our first question from Marci Ryvicker with Wolfe Research. Please go ahead.
Marci Ryvicker -- Wolfe Research -- Analyst
The market's been pretty nervous about net retrans trend given reported paid TV sub declines, coupled with some high-profile carriage SDA. So Dave, can you update us on subscriber trends, maybe touch on large versus small markets. And then as you mentioned, you have a lot of retrans contracts coming. So how should we think about pricing power? And then I have a follow-up.
Thanks.
Dave Lougee -- President and Chief Executive Officer
OK. Marci, thanks. So our paid subs are right in line with where we thought they would be. As we said last year, after we'd had eight straight positive months, we've now -- it's just slightly into the negative category, and this is both traditional and virtual combined.
And so we are right in line with where we thought we would be. And we are, frankly, because of our nature of our portfolio, to your second question, I think performing better than the industry overall. Yes, that gap between large and small markets continues to exist. It's narrowed a little bit as the virtual MVPDs have gotten into the smaller markets.
But I think it's got a lot to do -- I wouldn't also characterize it just between large and small. I would characterize it between some of the household income of those markets and the economic strength of the markets versus non. And for instance, I'll just pick one market, in the second quarter, Houston was up in total subs as an example. So there's kind of a tale of a few different economic cities in there.
As it relates to -- so you asked come about pricing and about the retrans disputes this summer. Let me talk about the retrans disputes this summer. Obviously, we are not involved in those, but there's a couple of dynamics there. One is August is not typically a good month to resolve retrans dispute, per say, so I think just -- I'd make that comment generally writ large, just because it's sort of a -- it's not a month of a lot of active programming, people on vacation, etc., etc.
And I do think there's actually a little bit of a political dynamic to some of the retrans disputes right now because the satellite home reauthorization act, I think I just screwed that up, known as STELA. It's up every five years, and that's up in next year. And typically the MVPD industry tries to use that piece of legislation to get its nose under the tent on messing around with retransmission consent, which we're confident they won't. But I think they believe those disputes create some of the noise that actually help them on that cause legally.
As it relates to our subs, Marci, so of that 85%, 50% of them will be by the end of the fourth quarter this year and in every -- and 35% next year. And in every case, we'll have significant step ups because we did those deals a few years ago. They're already, by definition, quite a ways under market. So I think the noise out there is a little bit of a huffing and puffing.
Bottom line is the strength of our portfolio will have very nice step ups in year one of those increases and good escalators going forward. And you had another question?
Marci Ryvicker -- Wolfe Research -- Analyst
Yeah. Just -- you mentioned you're taking your national sales in-house. Gray did this a while back, it was a little bit choppy for them at the start. So just wanted to know how we should think about the potential impact on national spot, and then what percent is national spot as a percent of total spot maybe of total revenue? Just to figure out.
Dave Lougee -- President and Chief Executive Officer
It's in the 30s. It's in the 30s, that's what we call national, Marci, because in the past, that definition has been whoever, whatever business was handled through a third-party rep. But we're on -- Gray did -- Gray really had a different portfolio, so they had a different strategy. Our strategy doesn't look like Grays.
We have a lot of large agency business. This is actually not gonna be negative to EBITDA in any way on our business. It's actually should be positive immediately and going forward, both on the expense but especially on the revenue side. What we're really aiming to do is take the friction out of the system for the agencies to actually give them less points of contact and then also to expedite the automation of the commodity business as I said faster, and that is gonna happen.
And the response from the agencies to what we have announced to them has been tremendous.
Marci Ryvicker -- Wolfe Research -- Analyst
Great. Thank you.
Operator
We'll take our next question from Alexia Quadrani with JP Morgan. Please go ahead.
David Karnovsky -- J.P. Morgan -- Analyst
Hi, this is David, on for Alexia. Dave, can you just provide some initial commentary on auto in the quarter. I know we did see a recovery in start of April. Just wondering if you've seen this reflected in the advertising demand at all.
Dave Lougee -- President and Chief Executive Officer
Yeah. The auto was about where it was in the first quarter. I mean for us, it's not violently down, it's, call it, mid-single digits. But -- and we'll come back to it.
But the most -- I guess the biggest story about auto is how little a story it's become relative to our overall advertising and marketing services. We've seen our best quarter in quite some time. And as we indicated in our guidance, we're projecting more sequential improvements. I could talk more about that later.
I think in the car space, I think it continues to be an issue from what we can tell, but there's a bit of a myth around SAAR because of a lot of it is fleet sales, right? So fleet sales don't bring with it that extra dollar of advertising for the Tier 2 and others. So I just don't -- I think it's a bit misleading. So on a relative basis, when you take out fleet sales, sales remains sluggish.
David Karnovsky -- J.P. Morgan -- Analyst
OK. And then just on the expense guide ex programming cost, you guided to flat to up low single-digits relative to down one in Q2. Can you just provide some color, and how to think about the sequential increase in the quarter? And then for corporate expense, the full-year guide does seem to imply a slight pickup in the back half. Just looking for some insight to what's driving that as well.
Thanks.
Victoria Harker -- Chief Financial Officer
Well, just to rebase my -- so for the second quarter, ex programming, we were down slightly. And then also ex -- the new acquisitions, the small ones that we had as well as programming, we were down about 3.3%. So that just gives you sort of a perspective for second quarter. We just gave you a third-quarter guide, which is not ex those elements, obviously, and we've got a little bit of leakage relative to Justice Quest and a couple of other costs.
Beyond that, in terms of the expense base line, we continue to drive into the back half some of the corporate expense reductions as well as the new system that we are implementing. So that when we bring on the new acquisitions, we've got reductions that will hit in the first quarter of 2020.
David Karnovsky -- J.P. Morgan -- Analyst
OK. Very helpful. Thank you.
Operator
We'll take your next question from Doug Arthur with Huber Research Partners. Please go ahead.
Doug Arthur -- Huber Research Partners -- Analyst
Yeah. Just one question, Dave. It's been kind of quiet on the deregulation front recently. As you look out to 2020 and beyond, anything to sort of materially update us on in terms of what the FCC may be working on at this point?
Dave Lougee -- President and Chief Executive Officer
Yeah. I think the cap is kind of in a sluggish spot right now, I think -- and with the STELA bill coming up, I think there's some dynamics in that relative to the industry itself and not about the good time. So I'm not terribly confident something happening before the end of this year. I still believe that a very good chance next year, there'll be a change in the cap.
Obviously, different structure, the discount embedded with the cap has to be dealt with at some point. But I think it's unclear right now what that timing will be, but I think with -- we've better chance in the first half of next year than the second half of next year.
Doug Arthur -- Huber Research Partners -- Analyst
OK. Thank you very much.
Operator
The next question will come from David Joyce with Evercore ISI. Please go ahead.
David Joyce -- Evercore ISI -- Analyst
Thank you. I was wondering if you could provide some more color on Premion in terms of how that contributed to the AMS growth in the quarter. And then just housekeeping item on when you think the pending Nexstar and Tribune closings might be. Is that still possibly an August event given the DOJ approvals? Thank you.
Dave Lougee -- President and Chief Executive Officer
You bet. So Premion was a contributor to our AMS growth, absolutely. We've got nice strong double-digit growth year to date and in the quarter on Premion. It's performing very very well.
But still as a percentage of overall business, it's just -- we got a lot of larger advertising dollars obviously. So we really -- we had a really good quarter on both counts what we -- what you would traditionally call core that we don't call out anymore, but core trends, as you referred to them, are also very strong for us as well. But Premion's doing very very well. Second question on Nexstar, honestly, we don't know.
We don't know until we know. The -- and a lot of those issues are really -- Nexstar has to -- we got to resolve those whatever issues there remain to be done. And I don't know that there are any with the FCC. Our indications are its pretty clean, and we've got the DOJ approval.
So I don't -- we don't know whether it will close this month because August tends to be a quiet month, and a lot of people in D.C. not working, but we shall see.
David Joyce -- Evercore ISI -- Analyst
Thanks. And then finally, if you could just comment on how things have been trending with the ATSC 3.0 that you're trialing with your partners?
Dave Lougee -- President and Chief Executive Officer
Yeah. I think there's a lot of progress being made on that front. So we're now in the transition phase where we're working with through Pearl and other large broadcasters to try to really focus on transitioning the top 30 markets. A lot of that has to do with when some of those markets are being repacked as part of the Spectrum option.
So ---but it -- I would say that it's actually ahead of where if you'd asked me three years ago where I thought it would be. But it's still gonna to take some time, obviously, given the repacking and the transition plan, which involves a lighthouse stick in each market to get done. But some markets will get done a lot faster than others.
David Joyce -- Evercore ISI -- Analyst
Great. Thank you.
Dave Lougee -- President and Chief Executive Officer
Thank you.
Operator
Moving next to Kyle Evans with Stephens. Please go ahead.
Kyle Evans -- Stephens Inc. -- Analyst
Hey, thanks. Dave, there was a time when we were, as a group, kind of excited about end-market M&A. Any new views on deregulation in that area?
Dave Lougee -- President and Chief Executive Officer
Yeah. No, as I said before, Kyle, I think the last couple of earnings calls, obviously, the -- sort of the position the DOJ started taking on the industry following the failed transaction of last year has put a crimp on that for the time being. I think over time, it's absolutely gonna happen, and we'll be very poised to participate. But our -- we are not building our -- all of our growth right now is not built around that, but we are -- when it does happen, we are poised to take advantage of it.
But I think in the current regulatory environment, at the moment, it's sort of temporarily parked.
Kyle Evans -- Stephens Inc. -- Analyst
Got it. We went through a period of sub growth on retrans, we're slightly red today, and we are looking at a sequential down subscriber rev in the quarter. What is your -- if you squint and look out at the back half of this year and next, what do you expect sub cap to do?
Dave Lougee -- President and Chief Executive Officer
Actually, let me make sure -- I think if you're -- you are referring, Kyle, to our having a lower growth number in second quarter. There's a little noise in that number. So I think we were plus 18%, is that right, in the first quarter. But 3% -- three of those points where we had KFMB and San Diego for the full quarter, and we didn't -- we only had it for six months last year.
So on a -- if you were to on a pro forma, that's a plus 15%, and. So plus 13% in second quarter is about exactly what we would have expected because that's normally the sequential trends we have. We have seasonality in our sub count. So there -- plus 15%, plus 13% is right where we thought we would be.
So really, there's no new -- I think the point about the sub trend issues for us is that as we've talked about it on the revenue side, the escalators that we are getting will get both some step ups and annual increases will far offset sub trend declines. Because as a reminder, and as an industry, but especially for groups with strong stations like ours, you still have this issue where call it, 15% to 20% of subscriber revenues go to the big four broadcasters while we still have 35% or so of the viewing. That delta is at work in the marketplace today and is working like it should be.
Kyle Evans -- Stephens Inc. -- Analyst
Got it. Do you have -- do you wanna share any outlook on that? Or is that -- do you wanna leave it there?
Dave Lougee -- President and Chief Executive Officer
No. We're not giving any outlook, but I think I used the word enthusiastic in my statement. So we're nicely positioned, Kyle, really nicely positioned given the amount of subs we have up for repricing. And the fact that we have absolute firewall on what our reverse comp would be, very clear knowledge of what that uncertainty for some time.
Kyle Evans -- Stephens Inc. -- Analyst
Great. Were you able to take cost out of the business, ex programming? And how much of that is left? That's my last question. Thank you.
Dave Lougee -- President and Chief Executive Officer
You know, there's no end to innovation. Technology continues to do wonderful things. So we continue to innovate, we're doing it right now, relative to rolling up on the finance side, doing some things we're over time, as the price of technology comes down, we'll probably be able to -- it costs a lot of money to move a TV station, but we've got some real estate we could get out of as cost finally come down on broadcasting infrastructure. And there's still some assist and -- but frankly, the national sales thing I just discussed.
The amount of kind of just -- it's kind of an old model how which orders were handled. It was a lot of -- just a lot of people touching it. And on that area writ large, while our in-house strategy is not cost driven, it actually will be in efficiency as well going forward.
Victoria Harker -- Chief Financial Officer
Kyle, this is Victoria. Just to expand on that a little bit. We have beyond the European implementation that we have got going on for next year, which contributes to the cost-saving synergies in the new acquisitions as well, we continue to invest in things that -- like healthy living for our employees, which reduce our medical costs. We've got a plug-and-play set of centralized systems and platforms now relative to cash management.
So a lot of the things that you would think of as sort of supporter infrastructure for us at TEGNA that we're now importing for the stations the we'll be acquiring are beneficial both to the employees as well as reducing our cost base, and importantly, freeing out free cash. So I think that there it becomes a much more modular plug-and-play with the new acquisitions that way.
Kyle Evans -- Stephens Inc. -- Analyst
Great. Thanks so much.
Operator
Our next question comes from Jim Goss with Barrington Research. Please go ahead.
Jim Goss -- Barrington Research -- Analyst
Thanks. Dave, you outlined a number of the key content and programming initiatives. And there are different attitudes and strategies toward content within the broadcast groups. I'm wondering if you might talk a little more broadly about what your strategy and philosophy is regarding programming.
What the nature, size, breadth and economic value could ultimately be? Is it just a sort of a sideshow supportive? Or is that a separate business that will take on greater presence over time?
Dave Lougee -- President and Chief Executive Officer
Well, thanks for the question, Jim. To your last question is both, right? So lets just take the TRUE CRIME initiative, right? It's not really just a podcast initiative. That's our first foray. But the fact of the matter is what we're planning to take advantage of is the fact that you're gonna -- hell I would call a nuclear war in scripted programming between the Netflix's and Disney's new service and AT&T's new direct-to-consumer service.
We're not gonna play in that game, right. But they will need other programming like reality programming, like say making of a murderer or was it a Ted Bundy special on Netflix. We have archive content, exclusive archive content on four out of 10 unsolved true crimes in America. So we're sitting on that library of IP content and that will really turn into a video production business that will not require some big studio investments.
There is reality producers all over the country that are available. We've got the former head of the Independent Producers Association leading the effort for us. So that will be a side business to where we'll be selling programming to big players in the ecosystem within our own stations. The primary focus initially around content innovation was, there was I think too many people in the industry, we just said, well, this is all secular in the client and linear viewing.
Certainly, a piece of it is, but a lot of it we'd consider as self-inflicted. Local TV newscast did not innovate a lot in the last 25 years, so we have had a lot of benefit, as I've talked to you about before, about an innovation process that allows local markets to really do some smart things and how to go to market, and we've got examples of newscasts that where we will literally take a No. 1 newscast to the market. The station went to market a whole different way, lost three quarters of its original audience and gained back 150% of its audience and got eight years younger on average.
That's real money. Even if the core market were declining, that gives us a share increase and that's 95% margin money. And then on like Daily Blast LIVE is a show that, with each acquisition, we are now adding programming to those new acquisitions at zero marginal cost and being able to reduce the syndication expense that might exist on those stations. So it's goodness all around.
And the side benefit, which does mean money over time, and it's starting to now, is that given our -- having a very focused companywide innovation and ideation process, where it's driven by the staff level, they get to participate, they get to own pilots, they get to feel like they're part of change, results in a more innovative culture both on digital platforms and all platforms at our stations as a result. So I appreciate the question because I think from a strategic standpoint as fragmentation increases and distribution advantages starts to decay over time, it'd be more and more important for local media outlets to differentiate themselves in content.
Jim Goss -- Barrington Research -- Analyst
OK. Thank you for that. Just one other area, regarding the M&A that you were talking about. Do you feel any added pressure for M&A as a result of the 2020 political comments, you can take greater advantage of it? And also will that M&A focus in that certain traditional range of market sizes, there's geography and political weight heavily on such decisions?
Dave Lougee -- President and Chief Executive Officer
To your first question, Jim, no. We don't feel any pressure to do anymore M&A. Our political footprint is fantastic actually. So we've got now states we have before that are gonna be massively competitive.
Just take Arizona, which really we'd never used a ton of money in. And now we're gonna have -- it's gonna going to be presidential battleground state and it'll one of the top three spending inner states in the Senate. And there's only two markets and we're in both. So our current footprint and we -- no, so no pressure to do M&A to get a higher share of political.
As it relates to going forward, we'll -- I would stay inside our knitting. We don't -- we're not looking for stations in markets 100-plus. We like big fours, and you'd probably notice, we've focused on three of the big fours for the most part, and we'll continue to do that. But we'll just continue to be opportunistic, but no pressure to do anything.
And I just wanna add to Victoria's point about the cap, right? So we're at -- specifically, with the discount, we're at 31.8%. So using capology, as we affectionally refer to it around here, and it is sort of like that sports team's salary cap -- with UHF stations, that's 14% of the country that we're under the cap. So we do look at acquisitions relative, as Victoria said, to how much cash flow, how much EBITDA do we get with each point under the cap, and that's a big criteria we use for M&A.
Victoria Harker -- Chief Financial Officer
Just one other thing, Jim. The -- in terms of our leverage and our ability to use of firepower, in addition to the cap itself, even when we close all of our transactions that we've previously announced, will be under five times. And as you can tell from what we have said previously, given the cash flow inherent in our 2020 results, political and otherwise, we very quickly delevered to about four or 4.1 times. So the capacity to do more M&A as it strategically rises is, obviously, they're both with leverage as well as the cap.
Jim Goss -- Barrington Research -- Analyst
OK. Thanks very much.
Operator
We'll take our next question from Craig Huber with Huber Research Partners. Please go ahead.
Craig Huber -- Huber Research Partners -- Analyst
Yes. I have a few questions, if I could. The advertising number, Dave, in the quarter that we just finished, excluding small acquisition, what was that percent change year over year, please?
Dave Lougee -- President and Chief Executive Officer
Sorry, advertising and marketing services, asking what?
Craig Huber -- Huber Research Partners -- Analyst
Yeah. Yeah. Excluding the small acquisition you guys did earlier in the year, what was that percent change year over year? Like was it --
Dave Lougee -- President and Chief Executive Officer
It was up low single digits. Yup, low single digits. Yup.
Craig Huber -- Huber Research Partners -- Analyst
OK. And then what's the TV advertising payceeds or just the total the advertising payceeds for the third quarter and year-over-year basis, excluding the acquisitions that have closed?
Dave Lougee -- President and Chief Executive Officer
They're good. So they're good. Obviously, we've closed July, and it was very -- it's very good. So they are -- they're positive.
And even though the quarter was late, as it always is, but they are good, and they are better than second quarter.
Craig Huber -- Huber Research Partners -- Analyst
So is that up like 3%, 4%, 5% you're suggesting? Or what was the --
Dave Lougee -- President and Chief Executive Officer
Not giving the number of forward looking on advertising and marketing services, but they're positive, and they're good, and they're better than second quarter.
Craig Huber -- Huber Research Partners -- Analyst
OK. And what is your updated take, Dave, on auto TV advertising? It seems like you'd kind of suggest that negative trends here might alleviate a little bit here in the second half of the year. But what is holding it back here? Just kind of looking at the various issues at the auto dealer level on the regional and the national level, please?
Dave Lougee -- President and Chief Executive Officer
Yeah. I think the only -- first of all, it's not terrible, right? It's just not positive, right? But the answer I've, Craig, is the one I gave earlier that which we seem to see is that the SAAR numbers are artificially inflated by fleet sales. So real sales at the dealership level are not up, all right? And as we all know, it's kind of a one-for-one correlation with sales. So you've seen it not just in TV, you've seen it in other forms of media that get auto advertising as well, so we are not unique and in fact there's even -- there's digital platforms that are down significantly more than we are.
Craig Huber -- Huber Research Partners -- Analyst
And then also Victoria, if I can ask you a housekeeping question. Once these two large acquisitions close, what do you think your annualized amortization expense on your P&L is gonna be?
Victoria Harker -- Chief Financial Officer
We're gonna update all of that, so you'll see a pre- and post-amortization EPS number, but we will do it all together once we get to close. We've got -- we're right now going through the process.
Craig Huber -- Huber Research Partners -- Analyst
OK. My final question, Dave, is what is the average percent change right now of the ratings at your local news across your portfolio in the most recent period you can talk about? What's the sort of range or heads down year over year, if you will?
Dave Lougee -- President and Chief Executive Officer
I don't have a number for that, Craig. Given the size of the company, we actually have three different forms of Nielsen methodology out there, so we don't even -- we are not even able to sort of do that in any meaningful way. So it varies. But we -- I would just say, overall, we have good trends in the markets that matter.
Two or three years ago, we hit some big markets and through some acquisitions that were heading in the wrong directions. So we have good trends, especially as you look at the share of our viewing, right? You might have a market where our HUT levels may be down 4% year over year in terms of overall view in the market, but we could be up. And we've seen some nice increases in the big markets that matter.
Craig Huber -- Huber Research Partners -- Analyst
OK. Great. Thank you.
Dave Lougee -- President and Chief Executive Officer
Thank you.
Operator
We'll take our next question from Michael Kupinski with NOBLE Capital Markets. Please go ahead.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Thank you, and thanks for taking the question. You know, I remember a time in the past where broadcasters would actually be a little bit more vocal to the networks regarding ratings performance. And how some of the money was actually being in reverse comp being spent in terms of programming initiatives. And I was just wondering in terms of these network reverse comp that you're currently paying, how are you holding the network's peak to the fire in terms of the rating's performance from the network side, and the prospect of where those dollars are allocated toward programming initiatives that might be interesting to TEGNA.
Dave Lougee -- President and Chief Executive Officer
Yeah, that's a great question. So that conversation does take place, believe me, it's just does -- it's behind closed doors. It's not something we do publicly. As a company, we've had -- we've had between relationships and our size, we've had access to all the networks relative to programming, and believe me we do have those conversations.
But for the most part, I'm gonna call out an individual network, or I actually believe we are pretty aligned. I think that the networks have found that NBC as -- when they first bought the NBC portfolio, I think they were focused on the cable assets, and broadcasters turned out to be the pleasant surprise. So I think that as cable -- Michael, as cable loses total subs, right, the broadcast networks are becoming a larger and bigger distribution source for them. So it's very important for them to have programming that's gonna work.
And I think a lot of that investment also comes down to sports, right? And I think they are going to be as invested in sports as they ever have been, and there, we are very much aligned.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Gotcha. And at this point, though, you don't have -- are you giving specific ratings performance guidances to the networks? I mean things that are -- because in the past I know that you would say that we're looking for a particular share. Anything specific like that or is it just more OK we wanna invest in sports because we know we'll get programming there or get viewers there? I mean is there any initiatives that you're looking for outside of sports that you would like the networks to move toward?
Dave Lougee -- President and Chief Executive Officer
We -- so look, with each of our networks -- yeah, not just about sports, look just take their news programming, right? It's a lot of our dayparts, so when we are sitting down with our network partners, we are very focused on their performance and particular dayparts, especially, say the morning's newscast, and things like that is. So it's not just around prime, and for instance, our ND's portfolio that today's show is very important was. And we help them make money and they help us make money, right? I think our stations performed at the very high-end relative to for that show, so we're -- it's a good question. We are very much, and you're right, as rivers comp has increased, it's only given us more leverage and entrée to have us on that stuff, but I think the good news is, for the most part, with most of the networks, we are now well aligned, more aligned, frankly, than we might have been nine or 10 years ago, when even NBC was running the cable prior to the Comcast days.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Gotcha. Thanks a lot. Thanks for answering the questions. Appreciate it.
Dave Lougee -- President and Chief Executive Officer
Thanks, Michael.
Operator
We'll take our next question from Davis Hebert with Wells Fargo. Please go ahead.
Davis Hebert -- Wells Fargo Securities -- Analyst
Good morning, everyone. Thanks for taking the question. Just a couple on the balance sheet. Do you need to come to the debt markets for funding of your acquisitions? I think you said you would use existing liquidity.
And then secondly, the near-term maturities you mentioned, how much runway would you like to create, and I think this also gives an opportunity to reassess your capital structure. So would you anticipate doing anything meaningfully different, perhaps looking at the current secured debt market? Thank you.
Victoria Harker -- Chief Financial Officer
Hi. Sure. And we've got a plenty of room under our existing revolver relative to this transaction, so we've already announced we're using a combination of draws on revolver as well as cash in hand. Given where interest rates are though, it does provide us with an opportunity to go aftermarket and do some refinancing and expand some of our maturities that lower cost, and we'll be looking to do that as I mentioned earlier.
We don't have anything substantially different in mind in terms of our structure. We are looking at the revolver, as I mentioned earlier, to extend it a year now that we've got to 2024 now that we've got additional EBITDA revenue and EBITDA from acquisitions. But keeping the $1.5 billion sort of size. And until we go to market and those kind of things really can't comment on covenant and structure, but at this point, no significant material changes to our plans.
Davis Hebert -- Wells Fargo Securities -- Analyst
OK. Thank you. And just a one big-picture question. Now that you've been building some scale with the virtual MVPDs, are you getting any sort of real-time data on viewership and anything more particular around the reach of younger demographics on those platforms? And thanks again for the questions.
Dave Lougee -- President and Chief Executive Officer
Yeah. That varies by our -- varies by the provider and by our network affiliation. So in some cases, yes, and in some cases, not as much as we'd like.
Davis Hebert -- Wells Fargo Securities -- Analyst
OK. Thank you.
Dave Lougee -- President and Chief Executive Officer
Thank you.
Operator
And this does conclude today's question-and-answer session. I'd like to turn the call back over to John Janedis for any additional or closing remarks.
Dave Lougee -- President and Chief Executive Officer
I'll take it, operator. Thank you again, folks, for taking the time today to listen to our call today. To conclude, we're pleased with and encouraged by the strength of TEGNA's business, which is supported by our strong subscription revenues we just discussed and our valuable affiliation agreements. As we look forward, this paired with our disciplined and active capital allocation and M&A strategy will continue to position us for success through the end of the year and well beyond.
If you have any additional questions we were unable to cover today, please reach out to John Janedis at (703) 873-6222. Thank you, again, everyone, and thank you, operator.
Operator
[Operator signoff]
Duration: 52 minutes
Call participants:
John Janedis -- Senior Vice President of Capital Markets and Investor Relations
Dave Lougee -- President and Chief Executive Officer
Victoria Harker -- Chief Financial Officer
Marci Ryvicker -- Wolfe Research -- Analyst
David Karnovsky -- J.P. Morgan -- Analyst
Doug Arthur -- Huber Research Partners -- Analyst
David Joyce -- Evercore ISI -- Analyst
Kyle Evans -- Stephens Inc. -- Analyst
Jim Goss -- Barrington Research -- Analyst
Craig Huber -- Huber Research Partners -- Analyst
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Davis Hebert -- Wells Fargo Securities -- Analyst